Friday, January 4, 2013

Friday lower

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Friday lower, low confidence.
  • ES pivot 1454.67.  Holding below is bearish..
  • Next week bias uncertain technically.
  • Monthly outlook: bias uncertain.
  • ES Fantasy Trader standing aside.

Last night I called for a doji day today and I think we pretty much got that with a spinning top in which the Dow lost all of 21 points.  It wasn't a true star but hey I'll take it.  Now that we have a reversal warning, let's see if the charts support that for Friday.

The technicals (daily)

The Dow: The Dow basically did what I figured on Thursday, posting a small range day at the top of Wednesday's monster rally.  And although we're still not overbought yet, the spinning top is at least a reversal warning.  I'd not be going long at these levels.

The VIXThe VIX continued a bit lower on Thursday, down another 0.82% to form a spinning top of its own.  It's indicators are nearing oversold but its stochastic is not yet forming a bullish crossover.  We're also a long ways from the lower BB at 13.4.  So there doesn't seem to be any real upward pressure on the VIX just yet.

Market index futures: Tonight all three futures are ever so slightly lower at 1:00 AM EST with ES dropping 0.03.  Here we got another spinning top, this one parked on ES's upper BB.The indicators still aren't quite overbought but the general feel of the candlesticks is one of tiredness.  ES is now looking like it wants to retrace Wednesday's gains.  If that happens, look for the 50% Fib retracement at 1450 as a logical stopping point.  We're already not too far from that.  And just beyond that is that monster Monday-Wednesday gap that's just begging to be filled.

ES daily pivot: Tonight the pivot inches up from 1451.08  to 1454.67.  However, combined with ES's meandering in the overnight, that now puts us below the new pivot, a bearish sign.

Dollar index: The dollar defied my expectations by not just moving higher but gapping up a big 0.71% to just reach its upper BB at 55.42.  This also brought the indicators even more overbought.  The current level is also a resistance line so I'm going to claim once again that the dollar is headed lower soon.

Euro: At least I was right about the euro moving lower on Thursday when it had its biggest fall since last July.  This brought the indicators to oversold levels.  The overnight trading is forming a morning star around 1.3048 so there are some signs the euro may be headed higher on Friday.  That would mesh well with my expectation for a lower dollar.

Transportation: In a bit of divergence, the trans on Thursday rose another 0l63% but formed a bearish inverted hammer in doing so.  While this requires confirmation, just looking at this chart makes one think that things are starting to look pretty toppy right about now.

Accuracy (daily calls):

Month    right  wrong  no call  conditional  batting   Dow
                                             average  points

January    1      0      1           0       1.000       0

     And the winner is...

I'd characterize the charts tonight as mildly bearish.  The momentum from earlier this week appears to have dissipated and the realization could bring out the profit-takers on Friday.  I'm going to go out on a limb tonight and call Friday lower.

ES Fantasy Trader

Portfolio stats:  the account remains at $100,000 as we wait for the right moment to enter our first trade of the year.  While I do think we're going lower on Friday, I still don't have a good enough edge to warrant going short just yet, so we'll just stand aside again.  There's no rush.

Thursday, January 3, 2013

Thursday doji day expected

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Thursday uncertain, doji day expected.
  • ES pivot 1451.08.  Holding above is bullish..
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias uncertain.
  • ES Fantasy Trader standing aside.

Yowza!  That's what I'm talking about.  After spending most of December pricing in the fiscal cliff, Mr. Market found a trampoline at the bottom and bounced clear over last month's highs with an eye-popping 308 point skyrocket.  Looks like they bought the rumor and then bought the news too, hand over fist.  Looks like I worried about that needlessly last night.  My quote pages were a lovely sea of solid green today.  A nice way to start the new year.  Now that we finally have some data to work with, let's take a quick trip through Chartland to figure out where Thursday's headed.

The technicals (daily)

The Dow: Today's king-sized green marubozu is a sight to behold.  In just two days, the Dow has traveled from its lower BB, out of its descending RTC, up through its 200 day MA and clear to its upper BB.  And witrh all that, it's not even close to being overbought yet, indicator-wise.  My only concern at this point is the usual tendency of the market to take a breather after big one day up moves, and they don't come much bigger than Wednesday's.

The VIXAd today's VIX chart was equally spectacular, as the VIX plummeted 18.53% o the express elevator to the basement, leaving behind a gap the size of a small planet.  (Planet X?)  The VIX didn't even fall through its 200 day MA, it never even visited there, opening way under it.  It's final stop at 14.68 is right at recent support but still above its lower BB at 13.72.  And as the Dow's not overbought, the VIX is still not oversold yet.

Market index futures: Tonight all three futures are lower with ES dropping 0.26% at 1:45 AM EST. Like the other charts, today's ES action was a sight to behold.  I've never seen the likes of this in the eight years I've been watching the markets - a huge gap up that ended above the upper BB.  Like the Dow, ES made a two day trip from lower to upper BB, all without becoming overbought.

ES daily pivot: Tonight the pivot leaps from 1409.75 to 1451.08.  With ES sagging a bit in the overnight, this now leaves us still above the new pivot, but not by much.  But it's not showing much enthusiasm for cracking below this line.  Still it bears watching.

Dollar index: You'd think the dollar would have cratered on a day like today, but instead it actually rose as the day went on after opening lower, ending up by 0.10%.  That leaves it highly overbought now (RSI = 93.9) so I'd expect it to be moving lower soon.

Euro: Today the euro broke out of its recent consolidation range to the downside, but it has no support til 1.3135 and is not yet oversold, so I'd expect it to continue lower Thursday.

Transportation: And finally, same story with the trans which gained even more than the Dow with a 2.43% blast that took us back to levels not seen since July 2011.  And even after that, they're also nowhere near overbought yet.  Amazing.

Sentiment: Once again it's time for the latest weekly TickerSense Blogger Sentiment Poll.  We continue to track the poll to see how well it performs.  Here's the final cumulative list for 2012.
Wk.# Week   % Bullish  % Bearish  NightOwl SPX  Accuracy

  1  1/3        46         21        +     1258   1/1
  2  1/9        56         37        +     1278   2/2
  3  1/17       41         33        +     1289   3/3
  4  1/23       46         32        +     1315   4/4
  5  1/30       48         31        +     1316   5/5
  6  2/6        56         30        +     1345   6/6
  7  2/13       48         31        +     1343   7/7
  8  2/21       44         32        +     1361   8/8
  9  2/27       48         24        +     1366   9/9
 10  3/5        43         26        +     1370  10/10
 11  3/12       46         32        +     1371  11/11
 12  3/19       46         29        +     1404  11/12
 13  3/26       39         29        +     1397  11/13
 14  4/2        42         21        +     1408  11/14
 15  4/9        25         46        -     1398  12/15
 16  4/16       26         48        -     1370  13/16
 17  4/23       30         48        -     1379  14/17
 18  4/30       44         32        +     1403  14/18
 19  5/7        23         50        -     1350  15/19
 20  5/14       32         44        -     1353  16/20
 21  5/21       30         52        -     1295  16/21
 22  5/29       35         42        -     1318  16/22
 23  6/4        32         48        -     1278  16/23
 24  6/11       28         40        -     1326  16/24
 25  6/18       39         26        -     1343  16/25
 26  6/25       38         46        -     1335  16/26
 27  7/2        41         40        -     1362  16/27
 28  7/9        42         38        -     1355  16/28
 29  7/16       44         32        -     1357  16/29
 30  7/23       33         42        -     1363  16/30
 31  7/30       43         22        +     1386  17/31
 32  8/6        52         28        +     1391  18/32
 33  8/13       43         21        +     1406  19/33
 34  8/20       46         31        +     1418  20/34
 35  8/27       39         29        +     1411  21/35
 36  9/4        31         38        +     1407  22/36
 37  9/10       54         29        +     1438  23/37
 38  9/17       63         22        +     1466  23/38
 39  9/24       52         30        +     1460  23/39
 40  10/1       39         39        -     1441  24/40
 41  10/8       52         34        +     1461  24/41
 42  10/15      41         32        -     1429  25/42
 43  10/22      38         41        -     1433  26/43
 44  10/29      36         43        -     1412  27/44
 45  11/5       44         33        -     1414  27/45
 46  11/12      38         46        -     1380  27/46
 47  11/19      52         34        +     1360  28/47
 48  11/26      48         26        +     1409  29/48
 49  12/3       57         21        N     1416  29/48
 50  12/10      46         29        N     1418
 51  12/17      52         28        -     1414
 52  12/26      52         26        +     1430
  1  12/31      40         48        - -   1402 
Again, the SPX number is the closing price of the S&P on the Friday before each new poll comes out.  The "NightOwl" column is how I voted.  Since the poll is for 30 days out, after the first four weeks we're able to see how well we did.  This week we see that I voted "Neutral" four weeks ago (because I felt I had no way to predict the outcome of the Fiscal Cliff), so that counts as neither right nor wrong.  Therefore, as we fill in the last few calls for 2012, I remain 29 for 48 or 60%.  I will remove all the 2012 entries in three weeks when we have a complete chart for the year.

Beginning this year, I'm going to track not only how I voted, but also how the majority of the poll participants voted, so we'll see how I did relative to everyone else.  So for this week, we see that "- -" means I voted Bearish and so did most of the rest of the voters.

Accuracy (daily calls):

Month    right  wrong  no call  conditional  batting   Dow
                                             average  points

January    0      0      1           0        .000       0


Here are my final performance stats for  2012.  The first two columns are for my trading account.  The next, "ESFT", is the ES Fantasy Trader.  Following that are the results for my IRA.  The last is the Dow, my reference benchmark that I try to beat or at least match.

 Date    Trading, Month  Tr. YTD  ESFT YTD   IRA YTD   Dow YTD
1/31/12       7.41%        7.41%   -0.50%     6.18%     3.41%
2/29/12       3.67%       11.35%    7.88%     9.02%     6.02%
3/31/12       1.76%       13.31%   29.88%    10.05%     8.16%
4/30/12       2.35%       15.97%   41.75%    10.90%     8.17%

5/31/12      -1.92%       14.23%   26.63%     4.91%     1.45%
6/30/12       4.33%       19.17%   40.38%     2.80%     5.44%
7/31/12       2.96%       22.69%   76.00%    10.98%     6.49%
8/31/12       2.75%       25.64%   66.25%    13.16%     7.17%
9/28/12       3.59%       30.15%   80.88%    15.37%     9.98%
10/31/12     -2.59%       26.77%   93.88%    14.04%     7.21%
11/30/12      2.17%       28.94%   98.00%    11.42%     6.63%
12/31/12     -1.42%       27.52%   93.50%    10.13%     7.29%

Mean          2.09%  

I'm pretty happy with those numbers.  I have beaten my benchmark with all three of my accounts and I'm in the ballpark of my recent annual results.  For the record here is how my trading account has done: since I started keeping records

        Michele     Dow
2007    -10.83%     6.43%
2008    -16.68%   -33.84%
2009     30.57%    18.88%
2010     31.99%    11.03%
2011     -0.01%     5.51%
2012     27.52%     7.29%

I started trading as a full time occupation in 2004. Of course I lost my shirt at first and didn't even keep any records for the first three years because it was all too depressing.  But I think by 2008 I was starting to get the hang of it.  I still lost money that awful year, but it was the first year I did better than the Dow.  Since then, I've been reasonably profitable.  I haven't made the outsized triple digit returns you see some people posting on the web, but on the other hand these are real numbers and they're better than I could have gotten in any bond fund or mutual fund.

     And the winner is...

After a wild ride like on Wednesday, the conventional wisdom would suggest that the market needs to pause and take a rest before its next move.  And with the indicators still not at extreme readings, and no reversal patterns in sight, it would seem that there's still at least a bit more gas in the tank before any profit taking kicks in.  But I'm fairly sure the big move is over, so I'm going to call Thursday uncertain, in the sense that I'm expecting a doji day as the market digests Wednesday's gains.  After that, we could see a pullback as buyer's remorse starts to set in.

ES Fantasy Trader

Portfolio stats:  the account remains at $100,000 as we wait for the right moment to enter our first trade of the year.  With no clear edge, tonight we stand aside again.  I always like my first trade of the year to be a winner, so I'm going to exercise a bit of patience and wait for something more tempting.

Wednesday, January 2, 2013

Wednesday uncertain, bias higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Wednesday uncertain, bias higher.
  • ES pivot 1394.33.  No overnight trading..
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias uncertain.
  • ES Fantasy Trader standing aside.

The United States Congress
So that's that - we finally went over the fiscal cliff.  Or maybe we didn't.  Hard to say actually.  One thing's sure though - the clowns in Washington put on their usual three ring circus and agreed to cut spending in reverse by adding four billion dollars to the deficit.  >CLANK< (that's the sound of the can being kicked down the road yet again).  And I was right - they waited until the last possible second before making a deal.  I just forgot that they could use January first as a bonus delaying day, and they did.

It's disgraceful, really.  What must the rest of the world think of us?  Hey all you Congerss-droids and Senators - have you no shame?  The only question left now is, having bought the rumor like mad on Monday, are they going to sell the news on Wednesday?

I'm going to skip the usual chart-by-chart analysis again tonight because Monday's rumor-induced move caused a bunch of distorted candles that I don't believe reflect the true technical forces of the market, and the recent spate of holidays has disrupted the normal rhythm of the markets, and also because we don't even have any overnight futures or currencies to look at right now anyway.  We'll get back to it once things settle down. 

My best guess at 1:30 AM EST is that we're going to rally hard off the open and then do some retracing later in the day.  But since I don't really have any solid evidence to back that up, I'm simply going to have to call Wednesday uncertain but with a positive bias and leave it at that.

Accuracy (daily calls):

Month    right  wrong  no call  conditional  batting   Dow
                                             average  points

January    0      0      0           0        .000       0

ES Fantasy Trader

Portfolio stats:  the account begins the new year by resetting to $100,000.  With little guidance from the charts, tonight we stand aside.

Let me take this opportunity to review the idea behind the ESFT, since people have been asking me about it.  ESFT is a fantasy trading account.  I use my broker's paper trading system to buy and sell ES, 10 contracts at a time.  I post the trades live on Twitter @nightowltrader.  There are two goals for this: first to prove to others (and to myself) that I know something about technical swing trading, and second, to gain enough confidence to do this for real.

The only "fantasy" part is that my real trading account will not support trades of 10 ES contracts at a time.  Other than that, I treat each trade very seriously.  To eliminate market variables, I always buy on the ask and sell on the bid.  That way there's no doubt that the trade would have been executed had it been placed for real.  I enter each trade late at night and plan to sell at some point the next day, though I may hold longer depending on how things work out.  I only place trades when I believe I have a significant edge - I'm looking for more than mere fractions of a point.

 I end up placing a bit less than two trades a week throughout the year.  Each trade runs with no stops and no targets, making the whole affair quite risky, but also potentially quite profitable.  In 2012, I almost doubled my initial investment.  We'll see if I can do that again this year.

And why don't I use stops or targets?  The idea behind stops is to limit your losses, and targets are to lock in your profits.  But I've found that all too often, it ends up working exactly the other way around - stops end up locking in losses and targets end up limiting profits.  I prefer to let the market tell me when to get out, and it generally does..

Tuesday, January 1, 2013



Here's to a happy, safe, and prosperous New Year to all my readers.

Stay tuned for our usual commentary late tonight.

Monday, December 31, 2012

Monday uncertain, bias higher

The Hoot 
Actionable ideas for the busy trader delivered daily right up front
  • Monday uncertain, bias higher.
  • ES pivot 1394.33Holding below is bearish.
  • Rest of week bias uncertain technically.
  • Monthly outlook: bias uncertain.
  • ES Fantasy Trader closed.

Fiscal cliff diving
The only thing that surprised me about last Friday's action was the extent of the losses as the Dow shed another 158 points to extend the losing streak to five in a row.  I figured we'd see more drifting lower, but this was definitely more than a drift as the market continues to price in going over the fiscal cliff.  And with no deal announced on Sunday, as I predicted a while ago we're going right up to the very edge.  Monday is now do or die.  Reach a deal, even if it's only to kick the can down the road (my personal guess) and we go higher.  No deal and we go lower, simple as that.

And in this continuing political soap opera, that's all you need to know about Monday.  There's just no way to meaningfully trade that type of market.  The technicals (although they're now looking primed for a bounce) are totally irrelevant at this point.  So once again, we skip the chart-by-chart analysis as a pointless exercise in futility.  Once we get past all this nonsense, maybe we can get back to work.  In the meantime, Happy New Year!  I'm done trading, the ES Fantasy Trader is closed, and we'll be popping the champagne corks Monday night.  Cheers!

Accuracy (daily calls): 

Month    right  wrong  no call  conditional  batting   Dow
                                             average  points

April      7      9      2                    .438
May       10      7      3           2        .632
June       8      6      6           1        .600     632
July      11      2      6           1        .857     917
August     8      6      8           1        .600     -78
September  8      6      5           0        .571     -19 

October    8      5      8           0        .615     208
November   7      5      5           0        .583     135
December   6      3      4           5        .786     496

ES Fantasy Trader

Portfolio stats:  the account ends the year at $193,500  after 74 trades (58 wins, 16 losses) starting from $100,000 on 1/1/12.  We'll start over again with $100,000 on the first of the new year.